Wednesday, November 16, 2011

Cross-Collateralization Clauses

A dirty little secret of the credit union industry is the use of cross-collateralization clauses in their loan documents. These clauses are sometimes referred to as dragnet or anaconda clauses.

Although some banks employ such clauses, these clauses are more prevalent among credit unions. It is estimated that over 70 percent of all credit unions use loan documents that include these clauses.

A cross-collateralization clause makes collateral that secures one loan serve as collateral for all loans the credit union has made or will make to the borrower. This effectively transforms all loans into secured loans.

Unfortunately, many borrowers are not aware of these cross-collateralization clauses until it is too late.

So, know before you owe.


  1. Keith -
    Don't you get it? This is just another way we help to put people back on their FEET! Maybe you are right the people are not aware about the cross collateral clause until it is too late. Reminds me of so many bank real estate notes. You know the ones: sub-prime, interest only, teaser rate, 125% financing, adjustable. And when the monthly payment hellaciously doubles and triples during the adjustment these folks are instantly in foreclosure and homeless. Keith, the bank should have warned them: know before you owe.

  2. Sir,
    As a disgruntled former credit union employee, I'm no friend to the industry. I think that if the public knew even half of what goes on behind closed doors, there would be an outcry.
    That being said, your post today seems quite petty. I think your little "know before you owe" phrase is applicable to all borrowers. There's no problem with a lender securing its assets contractually.
    How about exposing these "volunteer" boards for the exclusive, lavish clubs that they really are? Maybe compare some bank and credit union account packages side by side so people can see how the tax exemption isn't being returned to members would be useful. Cross-Collateralization clause stories aren't worth my time.



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